Reference no: EM132741724
Question - Market Value performs market research for consumer product companies across the country. The company conducts telephone surveys and gathers consumers together in focus groups to review foods, cleaning products, and toiletries. Market Value uses a normal-costing system with one direct-cost pool, labor, and one indirect-cost pool, general overhead. General overhead is allocated to each job based on 140% of direct labor cost. Actual overhead equaled allocated overhead as of April 30, 2017. Actual overhead in May was $125,000.
All costs incurred during the planning stage for a market research job and during the job are gathered in a balance sheet account called "Jobs in Progress (JIP)." When a job is completed, the costs are transferred to an income statement account called "Cost of Completed Jobs (CCJ)."
As of May 1, there were two jobs in progress: Craze Candy Bars, and Shimmer Toothpaste. The jobs for Roja Organic Salsa and Shine Dish Liquid were started during May. The jobs for Craze Candy Bars and Shine Dish Liquid were completed during May.
1. Calculate JIP at the end of May.
2. Calculate CCJ for May.
3. Calculate under- or overallocated overhead at the end of May.
4. Calculate the ending balances in JIP and CCJ if the under- or overallocated overhead amount is as follows:
a. Written off to CCJ
b. Prorated based on the ending balances (before proration) in JIP and CCJ
c. Prorated based on the overhead allocated in in the ending balances of JIP and CCJ (before proration)
5. Which method would you choose? Explain. Would your choice depend on whether overhead cost is underallocated or overallocated? Explain.
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